Margaret Thatcher, who died Monday from a stroke at the age of 87, left a lasting impression on the City of London. Her huge program of privatizations that saw household names including British Gas and British Airways floated ushered in an age of equity, transferring power to what Thatcher thought was the more efficient private sector, while her massive reform of the U.K.’s financial markets secured London’s position as an international financial hub and a serious rival to Wall Street.

Amid a backdrop of faltering economic growth, U.K. Chancellor George Osborne was always going to face an uphill task providing answers to an increasing list of questions on how to stimulate growth. Has he gone far enough?

Mark Boleat, policy chairman at the City of London Corporation, the local authority for London’s Square Mile, said:“Budgets are often best remembered – fairly or not – for the proverbial rabbits pulled out of the chancellor’s hat. In reality, however, the most effective policy approach is to provide a sense of stability and continuity. One rabbit pulled from the chancellor’s hat today that the City [of London] welcomes his pledge to increase infrastructure spending by £3 billion from 2015/16. We cannot afford to stand still while our rivals build for the future.”

U.K. Treasury chief George Osborne said economic growth would be much slower than expected and his government would have to borrow almost $90.6 billion more than planned, which is likely to fuel criticism of his austerity drive.

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David Cottle

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It won’t be the first time that a U.K. finance minister has found himself at odds with his euro zone peers, but George Osborne is probably quite content with the timing of Cyprus’s bailout imbroglio. He can’t expect much political cover for what is sure to be a tough Budget speech, but at least Cyprus might offer him some market cover, as investors choose to fret about the euro instead.

So far, indeed, the budget seems not to have figured much in sterling money-market trade this morning. The pound rose from a one week low against the dollar as the minutes of the Bank of England’s last monetary conclave showed more opposition to further stimulus than markets expected, and more explicit concern about a weak pound. Gilts are off, but that, too, seems to be down to the BoE as well.

Markets well know the U.K. is in a tight spot. Mr. Osborne isn’t going to change that view.

The latest jobs numbers out Wednesday morning show the British economy continues to generate good jobs growth. Yes, unemployment also rose, but that’s only because more people were coming back into the workforce — generally a good thing.

These employment numbers would normally offer at least some explanation for why inflation has been persistently sticky above the Bank of England’s 2% target. Except that none of the price pressure is coming from wages, which continue to trend down, and overall economic growth has been flat.

The City’s number crunchers busied themselves with the retail and banking sectors today.

Analysts at UBS focused on European investment banks and raised concerns about the impact of legal proceedings. “Litigation has become an increasing headwind for the European banks, with additional charges and provisions announced on a more frequent basis,” the bank’s analysts said.

Associated Press

The brokerage sees litigation costs as a key factor in the debate about capital returns, with the European investment banks in particular shrinking as a result of a number of issues (leverage, capital, returns) and consequently, having a smaller earnings base to absorb these costs.

As a result, UBS AG was downgraded by Credit Suisse. On UBS, the brokerage has pushed out its capital return expectations as a result of the litigation analysis and sees the stock as fully valued at this stage.

Sticking with the banks sector, ING Groep was cut by Morgan Stanley. Its analysts said:

“With the Dutch economy back in recession, real estate deterioration and disappointing investment yields, we think ING faces a tougher backdrop for its earnings as well as for the timing and value of asset disposals.”

It wasn’t just the Japanese who dodged the bullet at the weekend meeting of finance ministers and central bankers from the Group of 20 industrialized and developing countries. The British did too.

In the financial markets, speculation ahead of the Moscow G-20 meeting centered on whether it would criticize Japan for manipulating its currency downwards to boost its exports. In the event, it didn’t. And the sighs of relief were probably as loud in London as they were in Tokyo.

For while the Japanese have been the principle target for criticism, the Bank of England has been almost as open about its wish for a weaker currency. Only this weekend, in a speech at the Warwick Economics Summit, the academic Martin Weale came close to admitting it.

As part of a discussion about the U.K.’s external accounts, Mr. Weale, an external member of the Bank of England’s monetary policy committee, said that “the final, and perhaps most natural, means of resolving the problem is for the nominal exchange rate to fall.”

The first consequence of such a fall would be a further rise in inflation, he admitted. But he then referred to an MPC statement that it was appropriate to look through a temporary, albeit protracted, period of above-target inflation, adding: “I certainly see that there would be a strong case for treating the effects of any further depreciation similar to that experienced in the last few weeks in the same way.”

Edmond de Rothschild, the European private banking group founded by Baron Rothschild in 1953, and chaired by his son Benjamin de Rothschild, has gained FSA approval to launch a U.K.-focused private merchant bank, targeting companies, family offices and wealthy individuals.

The move is the latest in a line of merchant banks being launched in London, and the most recent development from Geneva-based Edmond de Rothschild to build a sizeable presence in the U.K., according to a source close to the situation.

The new bank, called Edmond de Rothschild Private Merchant Banking, was granted FSA approval last month.

London-listed miners Randgold Resources and Fresnillo suffered the heaviest losses on the FTSE 100 in early trading, while mid cap Petropavlovsk was also under the cosh following downgrades by Citigroup.

The brokerage cut Randgold and Fresnillo to “sell” and Petropavlovsk to “neutral.”

“We have been concerned about gold and silver prices for some time and the recent further loss of momentum has concerned us even more,” its analysts said.

They noted that Randgold’s key assets are located in African countries, all of which have a recent history of political instability. For Fresnillo, Citi’s number crunchers pointed to the company’s rich valuation. And on Petropavlovsk, Citi said that Polymetal recently announced that it was having troubles with its POX technology, which is the same technology Petropavlovsk will be using in future.

Meanwhile, Morgan Stanley took a look at the U.K. capital goods sector.

The U.K.’s currency and its benchmark stock index have parted company.

Battered sterling has spent 2013 notching up notable lows against everything that matters. Its $1.5493 nadir for Thursday so far was its worst showing against the greenback since last August, for example.

The FTSE 100 index, meanwhile, is making hay, flirting with its best level for five years.

There were two essential points to be distilled from the Bank of England’s quarterly Inflation Report Wednesday that are perhaps more important to the economy than the admission that the BoE will continue to ignore its inflation target for years to come.

One, outgoing Governor Mervyn King warned that the U.K.’s growth potential is lower than people used to think. And two, the central bank will continue to inflate asset bubbles.